What Apple Must Say And Do About The iPhone 4

You know you’ve got a problem when your product is ridiculed in David Letterman’s Top Ten List.

The CBS late-night funnyman on July 14 set up his “Top Ten Signs You’ve Purchased a Bad iPhone 4″ by telling his viewers there’s “something hinky” about the new iPhone, and that “they’re not hooked up right,” and that “they don’t like to be held.” From Apple’s point of view, it went downhill from there.

It’s not the first time that an Apple product has been the butt of the late-night TV jokesmiths. Saturday Night Live’s Seth Meyers, late last year, in listing the challenges to the iPhone: “Making phone calls.” This one, however, is starting to hurt.

From the day it first went on sale in June, of problems with the iPhone 4 and its tendency to lose signal strength or drop calls entirely when held a certain way seemed like just another tempest in an Apple product launch teapot. And yet the story refused to die, making the leap from enthusiast blogs, to the mainstream media, to Letterman. And at least three lawsuits are already pending. Now my colleagues at Bloomberg New are reporting that Apple senior executives, including CEO Steve Jobs, knew about what’s since become known as the “iPhone death grip,” as far back as a year ago, and were warned about it by a senior engineer and antenna expert.

Some of this is to be expected. Apple’s high-profile products have become a favorite target for irritable consumer advocates, class action lawyers, legislative and regulatory agencies, and the occasional jealous competitor.
This time is proving different. Now Apple is hearing not only from late-night comedians, but at least one U.S. Senator. Among those calling on Apple to make amends is Sen. Charles Schumer of New York, who’s released an open letter to Jobs asking for a “clearly written explanation of the cause of the reception problem,” and a “public commitment to remedy it free of charge.”

Clearly Apple’s decade-long run as a reliable consumer electronics hitmaker is at risk. There is still time to get this right. It’s next move will be to hold a press conference on Friday, July 16, at which it has promised only to discuss the iPhone 4.

When the complaints first emerged, Apple’s first move was to dismiss them. In emails from purchasers, CEO Steve Jobs advised consumers to “hold it differently.” The complaints persisted, so Apple investigated. On July 2 it said it was “stunned” to find that the formula the iPhone uses to determine how it should display signal strength was in some cases displaying more bars than it should be. Essentially, the iPhone wasn’t losing its signal, it just looked like it was.

Next came Consumer Reports, the gold standard of American consumer quality testing, announcing from atop its mountain that Apple’s otherwise wonderful device does indeed suffer from a hardware flaw that will cause it drop calls in places where AT&T’s network coverage isn’t strong. Apple shares fell $5.49 or more than 2 percent the next day. After increasing in value by 20 percent this year, Apple is down more than 7 percent since the iPhone 4 first went on sale on June 24.

While as yet there’s no evidence to support that iPhone 4 sales are being hurt, the time has come for Apple to do what it does so well, and get control of this issue, by doing right by its customers, admitting the full nature of the problem, and taking a few lumps if necessary. Here are some thoughts for what should emerge from Friday’s press conference and for some simple moves Apple can make going after that.

Apple’s vaunted reputation for product quality comes in no small part from an obsessive attention to detail. Moving the iPhone’s antenna to the outer-shell where it would come into contact with the human hand was not a decision arrived at lightly. The implications of so fundamental a shift in the industrial design of the product that brought in more than 40 percent of revenue in its most recent quarter would have been studied and tested ad nauseum for months if not longer.

In that case one of two things are true: The testing failed to detect the problem, or the decision to make the change was made despite the results of testing. Bloomberg’s reporting suggests it was the latter, in which case Apple may have misjudged how readily people might have discovered the problem. It’s entirely possible that the urgent need for more space to accommodate a larger battery and more chips in the end outweighed the perceived threat of radio interference from the human hand. Whatever the case, admit whatever mistakes were made. That’s step one.

Step two is to let customers vent their frustrations and quit pretending they don’t exist. Some reports have suggested that Apple has deleted comments from frustrated consumes. If true, that’s a very bad idea that only makes Apple look worse.

Do the opposite. Create a forum where Apple employees communicate clearly with affected customers. Giving people the chance to let off steam within reason on know that Apple is listening will prevent them from taking their complaints elsewhere, such as the comment sections of gadget blogs like Engadget and Gizmodo and their ilk, where they’re less likely to be polite. It also reduces that chances that those sites keep the story alive with more reader-inspired follow-up stories. People are right to be ticked off that their phone doesn’t make phone calls in certain circumstances, regardless of the reason. Within reason, let them have their say.

Step three. Send every iPhone 4 user, whether they’ve complained or not, a coupon that’s good for a free bumper, or a credit toward the purchase of an iPhone case, not only in the Apple store, but any store. Apple’s $29 colored bumpers (probably $1 to $2 worth of material and $27-$28 of pure profit) are said to essentially eliminate the problem. If the bumpers do the job, so will practically any case that keeps the hand out of contact with the gap between the antennas. Additionally: Every new iPhone 4 customer walks out with a free bumper in the color of their choice.

Assuming Apple has sold 2 million iPhones so far, it would cost at most $100 million to $150 million to give free bumpers or cases to everyone who’s bought one so far. In the worst case, double that to cover another 2 million iPhones. These figures are rounding errors for cash-rich Apple, which has $23.1 billion in cash and short-term investments plus another $18.5 billion in long term investments on its balance sheet.

Step four. Extend the time during which unsatisfied customers can return their phones for any reason for a full refund. By default, it’s 30 days. Give everyone affected plenty of time to mull it over. For this model, make it 90 days so long as the phone isn’t broken in other ways, and waive any annoying restocking fees.

Step five: Don’t recall the iPhone. A recall will only make this situation worse, and needlessly cause a lot of damage to the iPhone brand that will be difficult to repair. As others have observed, the iPhone isn’t a Toyota that doesn’t slow down when the brakes are applied. Lives are not at stake. Reputations are. Take what reasonable manufacturing steps are necessary to eliminate the problem entirely and apply them to future production runs. It may be necessary to allow early buyers to swap their early-generation iPhone 4s for later ones. Those people will likely be small in number. Grin and bear any related financial hit. It will only hurt a little.

Step six. Book Steve Jobs on Letterman. Millions will watch and forgive Apple as Jobs brings his unrivaled star power is the preeminent business and media personality of the moment to the stage of the Ed Sullivan Theater, and shows late-night TV viewers, a sense of humor, a little humanity, and a little humility. Letterman will do what he always does when people whose star power exceeds his own show up, ask a few probing softball questions, make a few self-deprecating jokes, and maybe pretend to eat an iPhone (again). Soon the great iPhone crisis of 2010 will be a memory.

Read the original story at BusinessWeek Byte of the Apple Blog